Accused mastermind of massive Ponzi scheme goes on trial in Charlotte

The accused mastermind of a $900 million pyramid scheme that bilked some 1 million clients around the world goes on trial this week in Charlotte facing up to 65 years in prison and a $1 million fine.

More than 50,000 North Carolina residents took part in ZeekRewards, including 1,500 from the Charlotte area. The estimated losses: $800 million in all.

Prosecutors say Paul Burks, a former country music disc jockey and retirement home magician, pocketed more than $10 million during 2011 alone. He is charged with mail fraud, wire fraud, conspiracy to commit tax fraud in connection with one of the largest Ponzi schemes in U.S. history.

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Jury selection opened Tuesday morning in the federal courthouse. The trial could take up to a month or more.

Burks, who operated out of Lexington, started ZeekRewards in 2011 to market his online auction site. It offered a share of profits to online investors, those who promoted Burks’ company on online sites or recruited others to join. Investments were capped at $10,000, but participants could make payments for spouses, children and other relatives.

Burks’ attorneys with the Charlotte firm of Tin Fulton argue that Burks has done nothing illegal. In court filings, they say he did not misrepresent ZeekRewards nor design or operate a pyramid scheme. The defense plans to call at least four expert witnesses, and it has asked U.S. District Judge Max Cogburn to ban any mention of “Ponzi” or “pyramid scheme” from testimony.

According to the defense, Burks and his team struggled to manage the explosive growth of ZeekRewards in which online users grew more than twentyfold in the first eight months of 2012. Daily revenue went from $5,905 in the first quarter of 2011 to more than $8.4 million in the third quarter of 2012 before the Security and Exchange Commission shut it down, defense documents say.

Lead defense attorney Noell Tin said Burks’ company paid out more than half the $939 million it generated. ZeekRewards, says Tin, “made good on the core of its promise.”

Prosecutors, however, say Burks and his staff grossly exaggerated profits, promising investors that ZeekRewards would more than double their money even as the recession dragged on.

Assistant U.S. Attorney Jenny Sugar said Burks and his underlings used the investments to pay themselves and earlier investors. By the time the SEC closed down ZeekRewards, it was on the verge of collapse.

“Put simply, Burks lied daily to obtain hundreds of millions of dollars for the scheme,” Sugar wrote in a pretrial brief.

Two of Burks’ top assistants, including his chief operating officer, have struck plea deals with the government and are expected to testify against him.

Charlotte attorney Ken Bell, a court-appointed receiver in a civil lawsuit against Burks and ZeekRewards, says he has recouped more than $350 million from ZeekRewards executives and 9,000 investors who received some of the highest payouts.

Some $250 million has been returned to about 107,000 victims. Bell is still attempting to recover an additional $225 million. The Associated Press contributed.